When you deposit money in your Bank they can lend them to someone else, up even to 90% making profit from it.
The person that borrowed money now has money in his bank account, and imagine is a different bank, 90% of those money can be lend to someone else.. and so on.
Banks have obligation to maintain just a fraction of the money you put in your bank account. It's a huge rabbit hole when you understand there's no money in First place, it's all debt.
There's no money? !
I thought that they can lend out 100 percent is US .. are you sure it is 90 % ?
But how does that matter ? If ..read the note below
I am not sure About US, but that wouldn't suprise me at all 😂
It doesn't matter indeed, it's just castel of paper digitalised IOU. More and more are finding it out.
Yup .. in US it is totally choice of bank to loan out as much as they want or put in assets like T bills. . but that is not what Fractional Reserve means ..
I think it means they need to maintain a fraction of their funds with Fed .. as their reserves go down or up .. there is interbank borrowing .. Fed sets up the rates for interbank lending .. called short term Target rates ...
Since Target rates are implemented only for a fraction of banks bank sheet , it is called Fractional Reserve system ..
It has nothing to do with how much or not banks may lend out ..
Did it make sense ?
It has to do on how much banks can use deposits in order to do whatever they want to, from lending to buy Tbills or anything else.
At least here Riserva Bancaria Frazionaria, is that portion "fraction" of reserves that banks must take and save in Central Banks to avoid risks. So 1% is what they must to save, the rest they can lend and or buy bills or bonds.. lol.
Exactly.. that is what Fractional Reserve means .. central banks use it to determine short term interbanks lending rate ..
Most people think fractional reserve means that banks can loan out all my money .. and that is like a crime or something.. no .. as long as they have balanced balance sheet .. and audited .. it is all fine ..
During covid they quietly amended the rules so it is now a 0% reserve requirement.
The dollar's you deposit are already backed by nothing and the deposits you make aren't even in the bank. You'll own nothing and be happy.
Damn! Missed this about the US, and just went to check, in Eu (Italy precisely, maybe different somewhere else) you need now ONLY 1%, from 2% it was before..
LOL!
It's insanity and completely irresponsible policy in the name of artificial growth via debt.
nostr:npub1zzmxvr9sw49lhzfx236aweurt8h5tmzjw7x3gfsazlgd8j64ql0sexw5wy summed it up the best:
Reserve requirements in the US have been zero for awhile now. But yes,they used to need cash.
They do at least have asset requirements still. Just not cash anymore.
Plus they need to maintain a reserve at Fed ..
